Pros and Cons Of Paying Your Taxes With A Credit Card

What are the Pros of Paying Taxes with a Credit Card?

From earning reward points to making the tax payment process simpler, paying your taxes using a credit card can be a smart move. Here are the various benefits of paying taxes with a credit card -

• Convenience - Nowadays, everyone is very familiar with using credit cards and UPI to make payments. One of the most important benefits of using a credit card for making income tax payments is the ease of the payment process and the familiarity with the payment system.
• Potential Rewards - Many credit cards offer many reward points for all transactions, including tax payments. These reward points can later be redeemed for different benefits, such as shopping vouchers, cashback, and air miles. Some credit cards also offer benefits specifically for tax payments. Always check the offers and benefits on your credit card before using it for tax payments.
• Interest-free Periods - Most credit cards offer an interest-free grace period for new purchases. By timing their tax payments strategically, taxpayers can use this period to better manage their cash flow.
• EMI Options - Some credit cards allow cardholders to convert large transactions into EMIs or (Equated Monthly Installments). This can be a great feature for those with huge tax liability. In other words, taxpayers can pay their taxes using a credit card and repay the outstanding amount in monthly installments.
• Digital Record - Making transactions using a credit card leaves a clear digital record of the transaction. It can also be used as proof of payment in times of crisis. Moreover, it can come in handy during audits and financial reviews.

What are the Cons of Paying Taxes with a Credit Card?

Even though there are various benefits of using a credit card for making tax payments, it also comes with a few drawbacks. Now that we have discussed the pros of using credit cards for tax payments, let us have a look at the cons, too -

• Convenience Fee - The government charges a nominal convenience fee for tax payments made using credit cards. Even though this fee is a very small percentage of the transaction amount, it can be substantial if the tax liability is high.
• High Interest Rates - While making payments through your credit card is a great idea, if you fail to repay your credit card bill in full, you might have to incur high interest charges. This can nullify the benefits of making payments via credit cards. Therefore, it is important to repay your credit card bill on time.
• Impact on Credit Utilization - Making a tax payment for a large amount using your credit card can significantly increase your credit utilisation ratio. It can also affect your credit score, which is calculated by comparing your credit limit to your credit card balance.
• Limited Payment Options - Sometimes, it might be possible that some tax payments may not allow making payments through credit cards. Such tax payments might require you to use traditional payment methods. Therefore, it is important to check if the credit card payment option is available for the specific tax payment you wish to make.
• Risk of Overspending - Since making tax payments through a credit card is extremely easy; some taxpayers might get too relaxed and avoid planning and budgeting for taxes, resulting in financial strain when the credit card bill becomes due.

How to Pay Taxes with Credit Card on the Income Tax Portal?

If you are wondering how to make tax payments using a credit card on the income tax portal, here’s a step-by-step guide that will help you make your tax payment through a credit card -

• Step 1. Visit the Income Tax portal and click on the e-pay tax button.
  
  
• Step 2. To make an income tax payment online, you will need to visit the income tax portal and click on the "e-Pay Tax" button. Enter your PAN and mobile number, then click "Continue." You'll receive an OTP on your mobile, which you'll need to enter in the designated field. After verification, a success message will appear.
  
  
• Step 3. On the next webpage, you'll see four options. To proceed with paying income tax using a credit card, select the "Income Tax" option and click "Proceed."
  
  
• Step 4. On the next page, you will need to select the assessment year and the type of payment you are making. After choosing the appropriate options, click "Continue" to proceed.
  
  
• Step 5. On the next page, you'll be asked to input the breakdown of your payment, such as tax, surcharge, cess, and interest. In this example, you can enter Re 1 in the "tax" column and proceed using a credit card.
  
  
• Step 6. On the next page, select the "Payment Gateway including UPI and Credit Card" option, then choose your preferred payment gateway. Each gateway may have different charges, so you can compare them before proceeding. After clicking "Continue," you'll see a breakdown of your total tax payments on the following page.
  
  
• Step 7. On the payment gateway page, enter your credit card number, CVV, and expiration date to proceed with the payment. Once the transaction is successful, you'll receive a confirmation.
  
  

Given the numerous benefits of paying your income tax through a credit card, it becomes one of the best ways to pay your taxes. Even if your tax liability is huge, you can pay your taxes without burning a hole in your pocket. Moreover, the process of paying through a credit card on the income tax portal is extremely simple.

The last date for filing your ITR for FY 23-24 was 31st July 2024. If you missed this deadline, you can still file a belated return by 31st December 2024 and pay your outstanding tax liability. Need help with taxes or assistance in filing your return? Book an eCA now!